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The Next Generation of Paying for Value in Medicaid

Paying for Medicaid and getting value
  • Lindsey Browning

    Program Director for Medicaid Operations, National Association of Medicaid Directors

  • Katherine Minnes

    Program Coordinator, National Association of Medicaid Directors

  • Lindsey Browning

    Program Director for Medicaid Operations, National Association of Medicaid Directors

  • Katherine Minnes

    Program Coordinator, National Association of Medicaid Directors

  • Medicaid agencies are starting to use alternative models of paying for care with behavioral health, safety-net, and long-term care providers to improve care for high-need patients

  • To expand the use of alternative payment models in Medicaid, CMS will need to provide more flexibility and support

Policymakers at the federal and state level have been taking steps to change the way health care is paid for as a strategy for reducing costs and improving quality across the health care system. Alternative payment models (APMs) provide incentives for health care providers to deliver efficient, coordinated care centered on the needs of each patient rather than simply paying for the number of services delivered.

To date, states have focused the development and use of APMs in Medicaid with primary and acute-care providers. These models, like episodes of care, population-based payments, and payments to support delivery system reform, are beginning to show early signs of success. APMs with primary and acute-care providers are often the natural starting point for delivery system and payment reform, as these providers may be better situated clinically to enter into new payment arrangements. States are now looking to extend the use of APMs to other providers in an effort to better serve complex and high-need beneficiaries — the patients who stand to benefit most from higher-quality patient-centered care — and drive comprehensive transformation of the health care system.

States are looking at three key areas for focusing new Medicaid APM efforts: behavioral health providers, safety-net providers, and long-term care providers.

Behavioral Health Providers

Medicaid programs are interested in creating financial incentives for physical and behavioral health providers to better coordinate care for patients with mental health and substance abuse disorders.

Several states have adopted payment reforms in this area. Rhode Island’s accountable care organization (ACO) model holds ACOs accountable for their performance around behavioral health outcomes. Maine and Tennessee adopted health homes focused on integrating care for individuals with behavioral health needs. Tennessee also adopted episode-based payments related to the treatment of attention-deficit/hyperactivity disorder and oppositional defiant disorder.

There are unique challenges in reforming payments to behavioral and physical health providers. Specifically:

  • Behavioral health providers have limited infrastructure to collect the data needed to measure performance and stratify patient populations for care management.
  • Physical and behavioral providers take distinctly different approaches to treatment, making it difficult to coordinate patient care across these providers.
  • Few behavioral health providers use electronic health records, which are a key tool for measuring quality of care and patient health.
  • Federal privacy policy prevents specialty substance abuse disorder treatment providers from sharing health information with other providers.

Safety-Net Providers

Medicaid programs also want to implement financial incentives to reimburse safety-net providers — including community-based health centers and rural hospitals — based on value of care. Oregon has already implemented alternative payment methods for some of its safety-net providers. Other states are interested in pursuing this and other APMs with their federally qualified health centers, including APMs that involve shared risk.

However, federal law mandates that certain safety-net providers be reimbursed based on cost, which limits the ability of Medicaid programs to adopt alternative payment methods. Medicaid programs and some safety-net providers are looking for flexibility from the U.S. Centers for Medicare and Medicaid Services (CMS), but have not yet received the green light to proceed.

Long-Term Care Providers

Patients receiving long-term services and supports have complex and intensive health care needs, but often receive fragmented care. Medicaid programs therefore are exploring how to use alternative payment methods to encourage skilled nursing facilities and home- and community-based providers to better coordinate and individualize care for these patients. In Tennessee, for example, nursing facility payment is already linked to certain performance measures. Tennessee is also using an APM with home- and community-based service providers caring for certain adults.

However, long-term care providers face capacity issues that make it difficult for Medicaid programs to pursue alternative payment methods. Home- and community-based providers are typically small, independent organizations, with limited financial resources, staffing, systems, and ability to take on financial risk. And there is a lack of robust, standardized quality measures in long-term care, making it currently challenging to link provider payment to quality of care.

Supporting the Next Generation of Alternative Payments

In light of the challenges in advancing these alternative payment methods, we have identified several different supports that Medicaid programs need to successfully expand value-based payment, including:

  • Flexibility from CMS to work around obstacles in federal rules, such as the requirement that safety-net providers must be reimbursed based on cost only.
  • Help from CMS in understanding which federal Medicaid waivers and authorities can be used to pursue payment reforms.
  • Federal investment in Medicaid leadership so that directors gain the skills to guide agencies, health plans, providers, and patients through the transition to a new health care business model centered around value-based payment.
  • Continued federal investment for Medicaid programs and providers to design and implement alternative payment methods. This includes up-front investments to build new IT systems, hire staff, consult with external experts, and drive practice transformation.
  • Ensuring that Medicaid programs have enough time to design, implement, and evaluate alternative payment methods. Alternative payment methods adopted by Medicaid programs have shown promising early results, but measuring performance and impact from these innovations takes time.

We believe these steps are necessary to deliver on the promise of payment reform for Medicaid’s most complex high-need patients. Payment reform for providers serving these patients will be a significant step toward advancing the transformation happening across the American health care system to stop paying for care based on quantity and start paying based on quality.

Publication Details



Lindsey Browning and Katherine Minnes, "The Next Generation of Paying for Value in Medicaid," To the Point (blog), Commonwealth Fund, October 11, 2018.